Stocks end lower as tech weakness quashes attempt at gains

ChrisMatthews

Markets Reporter

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Apple may have trouble meeting Wall Street’s expectations if demand for iPhones in China slows.

Major benchmarks closed lower Monday as tech weakness prevented stocks from holding on to earlier gains. Investors also remained cautious following last week’s equity-market rout, sparked in part by rising U.S. interest rates.

How did major benchmarks fare?

The Dow Jones Industrial Average
DJIA, -1.56%
reversed direction to fall 89.44 points, or 0.4%, to 25,250.55 while the S&P
SPX, -1.66%
slid 16.34 points, or 0.6%, to close at 2,750.79. The Nasdaq Composite
COMP, -3.03%
fell 66.15 points, or 0.9%, to finish at 7,430.74.

On Friday, the
DJIA, -1.56%
Dow Jones Industrial Average
DJIA, -1.56%
gained 287.16 points, or 1.2%, to 25,339.99, in whipsaw trading. The S&P 500
SPX, -1.66%
rose 1.4% to 2,767.13, snapping a six-day losing streak and the Nasdaq Composite Index
COMP, -3.03%
rose 2.3%, in its best daily performance since March 26. But for the week, the Dow fell 4.2%, the S&P lost 4.1% and the Nasdaq shed 3.7%, representing their worst weekly performances since March.

What drove the market?

Investors remain spooked after last week’s two-day selloff that at its worst wiped 1,400 points off the Dow, and pushed the Nasdaq toward correction territory. Losses were tied to jitters over a sudden rise in interest rates, as the yield on the 10-year Treasury note
TMUBMUSD10Y, -1.53%
hit a seven-year high above 3.25% last week. That yield was hovering at 3.15% on Monday.

Seen as a major driver for stocks, third-quarter earnings season gets under way in earnest this week, with Goldman Sachs Group Inc.GS, -1.93%
among the big bank names reporting, while streaming video group Netflix Inc.NFLX, -5.45%
will also be a highlight.

Geopolitical tensions were another worry for investors, starting with Saudi Arabia, which is locked in a diplomatic spat with the U.S. On Sunday, President Donald Trump threatened “severe punishment” for the Saudis if any connection was found between the kingdom and a missing dissident journalist. That country responded with an immediate threat to retaliate, sparking a rally for oil prices.

Those oil gains were pared, however, as Trump appeared to soften his tone on the controversy, suggesting “rogue killers” could be involved.

What were analysts saying?

Investors should look to recent history if they want to know where markets are headed in coming weeks, said Thomas Martin, senior portfolio manager with GLOBALT Investments. He argued that the same factors that triggered February’s stock market correction: fears over rising rates and inflation and a resultant shift from growth to value stocks—are those which led to last week’s rout. But just as they did in late February and March, rates “have taken a big move back down,” from last week’s highs, he said. “We’re now in a phase where markets are digesting these new levels, and if earnings continue to impress,” another march higher similar to what happened in the spring could be in store.

Investors need two things to keep buying the dips in the stock market, said Hussein Sayed, chief market strategist at FXTM, in a note to clients.

“One, which is the most important, is corporate profits must remain robust and beat the 20% earnings growth projected for the third quarter while painting a rosy outlook for the quarters to come. Two, the U.S. and China need to cut a deal on trade, said Sayed. “If those two criteria aren’t met, then stocks might have already peaked for 2018.”

Shares of Sears Holdings Corp.US:SHLD
sank nearly 24% after the iconic retailer filed early Monday for bankruptcy protection from creditors. The chapter 11 filing comes after the company reached a deal with lenders that will allow it to keep hundreds of stores open for now.

Shares of Dell TechnologiesInc. rose 0.5%, while VMware Inc. shares shed 2.5%. Billionaire investor Carl Icahn on Monday disclosed he had boosted his stake in shares that track Dell Technologies’
DVMT, -1.12%
interest in VMware
VMW, -2.30%
to 8.3%. In a letter, he said he plans to vote against Dell Technologies’ plan to buy the stock.

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